For the third year in a row, the Quebec Sales Tax (QST) will be changing. Fortunately, the change is not to the rate, which effectively remains the same, but rather an effort to harmonize the QST with the GST. Consequently, the most significant change is the method by which the rate is calculated.

In the past, the QST used to be calculated on the total sale plus GST. As a result the published rate was 9.5% while the effective rate was actually 9.975%. The harmonization of the GST and the QST requires that the QST be charged on the sale amount only, without the GST. As such the published rate and the effective rate will both be 9.975%. This is illustrated below:

2012

2013

Taxable Sale

100.00

100.00

GST Rate

5.00%

5.00%

GST Amount

5.00

5.00

Taxable Sale+GST

105.00

N/A

QST Rate

9.500%

9.975%

QST Amount

$ 9.975

$ 9.975

Total Sales Taxes

$ 14.98

$ 14.98

The other significant changes pertain to financial institutions which will no longer be “zero rated” but “exempt”. This means that they will not be allowed to claim QST input tax credits i.e. sales taxes paid on the expenses they incur.

Even though the actual amount of QST being charged is exactly the same, the underlying calculation has changed. As such most accounting software will have to be updated. It is important to note that as of January 1, 2013 invoices must reflect a QST rate of 9.975% instead of 9.5%. Many accounting software accommodated the calculation of the QST via compounding or a “piggyback” method. This needs to be identified and updated, however it is important that any adjustments do not affect your accounting retroactively. Usually this is done by adding a new QST category that calculates the sales taxes based on the taxable sale and not taxable sale+GST.

The following accounting software have released specific guidance (step by step instructions) on changing the QST rate

Quickbooks:

Quickbooks handled QST via a piggyback calculation. In order to implement the new QST rate, you will have to:

For all other accounting software, I suggest that you go to their website support section to determine if they have released an update. If not, you should contact them if you are unsure of how to change it.

Hopefully business owners will get a break for the next few years from having to make any QST rate or calculation changes, but with a new government and an economy in flux, we won’t hold our breath

Montreal Financial

Montreal Financial helps small businesses, independent contractors and startups with their tax obligations, accounting setup and maintenance and other financial consulting needs. Please email us at info@montrealfinancial.ca for additional information